The Psychology of Human Misjudgment

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The Psychology of Human Misjudgment by Charles T. Munger

Selections from three of Charlie Munger's talks, combined into one talk never made, after revisions by Charlie in 2005 that included considerable new material. The three talks were: (1) The Bray Lecture at the Caltech Faculty Club, February 2, 1992; (2) Talk under the Sponsorship of the Cambridge Center for Behavioral Studies at the Harvard Faculty Club, October 6, 1994; and the extensive revision by Charlie in 2005, made from memory unassisted by any research, occurred because Charlie thought he could do better at age eighty-one than he did more than ten years earlier when he (1) knew less and was more harried by a crowded life and (2) was speaking from rough notes instead of revising transcripts. (3) Talk under the Sponsorship of the Cambridge Center for Behavioral Studies at the Boston Harbor Hotel, April 24, 1995.

PREFACE When I read transcripts of my psychology talks given about fifteen years ago, I realized that I could now create a more logical but much longer "talk," including most of what I had earlier said. But I immediately saw four big disadvantages. First, the longer "talk," because it was written out with more logical completeness, would be more boring and confusing to many people than any earlier talk. This would happen because I would use idiosyncratic definitions of psychological tendencies in a manner reminiscent of both psychology textbooks and Euclid. And who reads textbooks for fun or

revisits Euclid? Second, because my formal psychological knowledge came only from skimming three psychology textbooks about fifteen years ago, I know virtually nothing about any academic psychology later developed. Yet, in a longer talk containing guesses, I would be criticizing much academic psychology. This sort of intrusion into a professional territory by an amateur would be sure to be resented by professors who would rejoice in finding my errors and might be prompted to respond to my published criticism by providing theirs. Why should I care about new criticism? Well, who likes new hostility from articulate critics with an information advantage? Third, a longer version of my ideas would surely draw some disapproval from people formerly disposed to like me. Not only would there be stylistic and substantive objections, but also there would be perceptions of arrogance in an old man who displayed much disregard for conventional wisdom while "popping-off" on a subject in which he had never taken a course. My old Harvard Law classmate, Ed Rothschild, always called such a popping-off "the shoe button complex," named for the condition of a family- friend who spoke in oracular style on all subjects after becoming dominant in the shoe button business. Fourth, I might make a fool of myself. Despite these four very considerable objections, I decided to publish the much-expanded version. Thus, after many decades in which I have succeeded mostly by restricting action to jobs and methods in which I was unlikely to fail, I have now chosen a course of action in which (1) I have no significant personal benefit to gain, (2) I will surely give some pain to family members and friends, and

(3) I may make myself ridiculous. Why am I doing this? One reason may be that my nature makes me incline toward diagnosing and talking about errors in conventional wisdom. And despite years of being smoothed out by the hard knocks that were inevitable for one with my attitude, I don't believe life ever knocked all the boy's brashness out of the man. A second reason for my decision is my approval of the attitude of Diogenes when he asked: "Of what use is a philosopher who never offends anybody?" My third and final reason is the strongest. I have fallen in love with my way of living out psychology because it has been so useful for me. And so, before I die, I want to imitate to some extent the bequest practices of three characters: the protagonist in John Bunyan's Pilgrims Progress,...
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